With the skyrocketing cost of customer acquisition, it makes
sense to focus on retaining and up-selling current customers. It
can cost as much as five times more to win a new customer than to
keep an old one. Yet many entrepreneurs remain fixated on
prospecting-at the expense of programs for existing customers that
would build sales more cost-effectively.

Customer loyalty programs (aka reward programs) have become
essential in price-sensitive arenas and where there are similar
products or services. About half of all Americans belong to at
least one. Drugstore chain CVS Corp., for instance, has 32 million
"ExtraCare" card members. And Regal Entertainment Group
rewards frequent moviegoers with free concession food and
discounts.

Loyalty programs make sense for growing businesses, too.
Entrepreneurs with successful customer reward programs enjoy
increased sales, have lower marketing costs and amass invaluable
information. The bulk of the data is gathered when customers sign
up. Later, information is collected through surveys and during
transactions.

By tracking current customer data, you can discover
opportunities, better segment your customer base and identify the
needs of different groups. If you're a retailer, you can use
this information to accurately stock your store. And once you
uncover your best customers' preferences, you can develop
marketing campaigns that target prospects who share similar
characteristics.

Eyes on the Prize

Here are a few things to keep in mind when creating a reward
program:

Choose the right rewards. In-kind rewards are less costly and
are clearly associated with your business. Say you owned an ice
cream shop and wanted to reward customers who had purchased five
cones. Providing the sixth cone free would be better than offering
a discount on a movie ticket because it would cost less and
customers could relate it to your business. It would also convey a
real cash value-while the free cone might cost you 25 cents,
customers would perceive it as a $2.25 gift.

Entice your customers. Tell customers what to expect.
This entices them to make purchases toward their goals. You can
also use your program to encourage customers to try other products
and services. Let's say your ice cream shop rewards customers
with a double-decker sundae following a dozen purchases. Tasting
the reward will introduce customers to higher-priced items, thus
encouraging more customers to buy them.

Reward your best customers. Offering graduated awards
with increasing cash value is a great way to motivate your best
customers. This turns low-value customers into high-value ones, and
it avoids the pitfalls of other types of reward programs, which
attract less-profitable price switchers.

Reward at enrollment. Programs that provide immediate
rewards encourage customers to register. One method is to offer a
bonus at enrollment. And some retailers engage customers before
they ever leave the store by making an additional offer at checkout
or by printing a message on the sales receipt.

Measure performance. Set goals for your program, and
continually monitor your results. Measure the increase in use of
your products or services, the number of transactions involving
loyalty program ID numbers, and the growth of your enrolled
customer base. Then you can fine-tune your program and build on
what works.

Kim T. Gordon

Kim Gordon is the owner of National Marketing Federation and is a multifaceted marketing expert, speaker, author and media spokesperson. Her latest book is Maximum Marketing, Minimum Dollars.